Cost Channel, Interest Rate Pass-Through and Optimal Policy under Zero Lower Bound

Published By: Indira Gandhi Institute of Development Research, M | Published Date: July, 01 , 2016

This paper analyzes optimal monetary policy under zero lower bound in the presence of cost channel. Cost channel introduces trade-o¤ between output and inflation when economy is out of ZLB. As a result, exit time both under discretion and commitment is endogenous in the presence of cost channel. Paper also finds that commitment outperforms discretion by promising future boom and inflation and a T-only policy closely replicates commitment both under presence and absence of cost channel.

Author(s): Siddhartha Chattopadhyay, Taniya Ghosh | Posted on: May 04, 2017 | Views() | Download (196)

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